The Monitoring Role of the Media: Evidence from Earnings Management

51 Pages Posted: 23 Mar 2017 Last revised: 17 Jun 2020

See all articles by Yangyang Chen

Yangyang Chen

City University of Hong Kong (CityU) - Department of Accountancy

Agnes Cheng

Hong Kong Polytechnic University; University of Oklahama

Shuo Li

Western Washington University - Department of Accounting; Western Washington University

Jingran Zhao

Hong Kong Polytechnic University

Date Written: June 17, 2020

Abstract

In response to the recent debate on the media, this paper examines the effect of media coverage on firm earnings management. Even if prior studies (Miller 2006; Dyck et al. 2010) have documented the media’s role in detecting and deterring accounting fraud (or extreme earnings management), it is unclear ex-ante whether the media amplifies or curbs less egregious earnings management. Our results show that media coverage is negatively associated with both accrual-based and real earnings management, suggesting that the media serves as an external monitor that curbs managers’ opportunistic earnings management behaviors. Further analyses show that the effect of media coverage on earnings management is more pronounced when monitoring from auditors is weak and when the other information intermediaries are active. Overall, the findings suggest a monitoring role of the media in firm financial reporting practices.

Keywords: Media Coverage, Earnings Management, Monitoring

JEL Classification: M41, G14, G34

Suggested Citation

Chen, Yangyang and Cheng, Agnes and Li, Shuo and Li, Shuo and Zhao, Jingran, The Monitoring Role of the Media: Evidence from Earnings Management (June 17, 2020). Available at SSRN: https://ssrn.com/abstract=2938955 or http://dx.doi.org/10.2139/ssrn.2938955

Yangyang Chen

City University of Hong Kong (CityU) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Agnes Cheng (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

University of Oklahama ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Shuo Li

Western Washington University - Department of Accounting ( email )

516 High Street
Bellingham, WA N.A 98225
United States
3606503202 (Phone)

Western Washington University ( email )

United States
3606503202 (Phone)

Jingran Zhao

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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